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Friday, May 11, 2007

Gold Sentiment "Damaged"

MarketWatch reports on precious metals. "Gold futures closed higher Friday, staging a partial recovery from a more than $15-an-ounce drop in the previous session as strength in oil prices and some weakness in the U.S. dollar lent support to the precious metal.But Thursday's drop in the benchmark June gold contract to its lowest closing level since late March was the biggest contributor to the $17.40, or 2.5%, loss in prices for the week."

"'Only about a third of yesterday's damage was offset by today's bounce, and the mood remains cautious, at best. A marginal decline in the U.S. dollar gave gold prices the smelling salts they so badly needed after yesterday's swoon,' said Jon Nadler, an analyst at Kitco Bullion Dealers."

"Gold for June delivery rose $5.30 to close at $672.30 on the New York Mercantile Exchange Friday."

"'Gold is recovering after this morning's clearly disappointing retail-sales number and PPI lift,' said Kevin Kerr, editor of Global Resources Trader. 'Bond bulls are back and the dollar bears seem to have all the ammunition they need to take the greenback down a few pegs at this point, and they likely will,' he said."

"But the contract closed down $15.50, or 2.3%, at $667 an ounce Thursday to mark a seven-week low after the dollar rose to a one-month high against the euro. Peter Grandich, editor of the Grandich Letter, said traders were disappointed that gold could not breach the $700 level. That 'led to some chart selling, a short-covering rally in the U.S. dollar and an unusually high number of outstanding contracts that need to be rolled over on the Comex,' he said. 'So, gold is back at the key support level around $665.'"

"'I expect some sloppiness for the near term, but I see the $700 level being taken out before the end of June,' he said."

"Still, sentiment has been 'damaged' as gold lost around 3% in the latest slide since April 23, said Nadler. 'Traders are suddenly much more aware of minute details such as the cessation of the May Indian wedding season tomorrow,' he said. 'The astounding drop in retail sales that hit the markets...yesterday still should be fully factored in before making any rash trading decisions.'"

"In the backdrop, the dollar dipped against other major currencies after government reports showed weaker-than-expected U.S. retail sales and benign core wholesale inflation for April."

"For now, strength in oil prices appeared to provide some support, with higher energy prices raising gold's appeal as an investment hedge. Crude-oil and gasoline futures extended their gains Friday as traders continued to show concern over U.S. gasoline supply levels ahead of the summer-driving season."

"Other metals prices followed gold higher, with July silver up 16.5 cents to close at $13.305 an ounce, though it was 1.7% below last week's close. July platinum rose $17.50 to finish at $1,341.70 an ounce, up almost $13 from a week ago. June palladium added $4.90 to close at $368.65 an ounce, finishing below last week's close of $377."

From Reuters. "Most-active gold for June delivery on the COMEX division of the New York Mercantile Exchange settled up $5.30 at $672.30 an ounce amid heavy volume, after prices also hit a five-week low on Thursday. Traders said short positions were being reversed after data showed tumbling U.S. retail sales and subdued inflationary pressures."

"'It took a while, but the dollar came off after the data, people started to think about rate cuts,' a London-based trader said. 'Higher oil prices will help precious metals.'"

"However, even though the dollar is lower, it is still near one-month highs against the euro. That, combined with Thursday's stock market losses, points to a nervous mood among investors, who are likely to sell their holdings, including gold, much as they did earlier this year."

"'There's a whiff of risk aversion in the air, and that seems to be encouraging people to reduce risk,' said John Reade, analyst at UBS, adding that many asset prices had returned to levels before the correction started in February."

"Gold bulls expected prices would eventually test the 26-year highs of $730 an ounce set last May. But that hope faded and gold's prospects could deteriorate further if U.S. Treasury Secretary Henry Paulson's support for a stronger dollar is the beginning of a new trend."

"Analysts also cited heavy sales by European central banks for gold's decline. The Bank of Spain on Thursday said it sold 1.3 million ounces of gold from its reserves in April and another 1.3 million ounces in March."

"Another major indicator of investor sentiment is the volume of flows into and out of exchange-traded gold funds. The New York-listed StreetTracks gold fund, the world's largest gold ETF, which accounts for about 80 percent of the metal jointly held by such funds, lost more than five tonnes between Wednesday and Thursday."

"'We tend to concur with the ETF trends,' JPMorgan said in a note. 'Combined with a weak volatility environment, the most likely outcome in the very short term is further selling on rallies towards the top end of the $685 to $695 ounce range.'"